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TAX BLOG

September 21, 2016

My last update on Sept 8 2016 (Saving taxes through payroll) briefly touched on the timing differences between estimated quarterly taxes and withholding through payroll. This week I will extend and elaborate upon the concept of estimated taxes, in particular how higher income taxpayers can ballpark their 2016 taxes and avoid underpayment penalties and interest.

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IRS Publication 505 provides guidance for taxpayers regarding estimated taxes and withholding. The following excerpts intr...

September 8, 2016

Last week I explained how self-employment taxes and payroll taxes are two sides of the same coin. This week, I will illustrate how a self-employed individual can benefit from being on payroll.

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Let's take a closer look at how payroll can reduce excessive taxation:

1. Assuming no other data, $100,000 of business income for a self-employed individual (filing single in 2015) will result in $30,580 of tax.

2. Of this $30,580 in taxes, nearly half ($14,130) is in the form of self-employment tax...

September 2, 2016

W-2 employees don't pay self-employment taxes. Or do they?

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As an employee, 6.2% of every dollar earned is withheld for Social Security, and an additional 1.45% is withheld for Medicare. 

The employer pays the same amount, so that the total amount of Social Security and Medicare taxes withheld is:

= (6.2% + 1.45%) + (6.2% + 1.45%)

= 15.3%

Therefore, on $100,000 of W-2 wages paid by an employer to an employee, $15,300 is paid to the IRS in the form of payroll taxes.

[$100,000 x 15.3% = $1...

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